June 2016 – Brisbane Southside Industrial Leasing Update

9 June, 2016 / Vanessa Rader and Paul Anderson

The Brisbane industrial market has slowed over the past few years with vacancy levels growing most notably across the larger size ranges. As larger tenants seek new purpose built facilities, older stock is left available in the market putting pressure on secondary stock. This has had an influence on both rents and incentives, while yields have been somewhat immune to these market fundamentals due to the weight of funds and low interest rate environment.

There are currently 687,522sqm of new industrial stock in the development pipeline which represents 80 projects. With vacancy levels slightly elevated at the moment, it is encouraging to see only seven projects under construction which represents over 30,000sqm. This includes the Couriers Please Warehouse in Salisbury, this 11,800sqm warehouse is due for completion in October 2016 and is fully committed to Couriers Please. There is also a large glut of potential supply in the DA Approved category over 530,000sqm across 56 projects, it is unlikely that these projects will be speculatively added to the market and will seek pre commitment before construction commences. There is still a further 120,000sqm in early planning phases, historically these projects together with the DA Approved projects do not all enter the market and may remain in the pipeline for years until the appropriate level of demand is met.

As vacancy levels have been high across the broader market there has been some downward pressure on face rents. Rents have been similar across the South East, South and South West averaging $99/sqm, $99/sqm and $100/sqm respectively. The South has witnessed the greatest decline of -8.64% over the last two years, while South East and South West recorded -2.94% and -5.66% reduction over the same time period. This trend has been in the marketplace over the past two years and evidenced not only in the Southside of the city but across the total metropolitan area. Despite a decline to face rents, incentives remain commonplace putting further pressure on the net effective result; incentives in the range of 8-10% have been recorded for prime assets however can extend to up to 15% for secondary assets. As the mismatch between demand and supply has kept vacancy elevated, the outlook for rental growth looks uncertain. The erosion in incentives are likely to move prior to face rent growth showing positive movement in effective rents within the next 18 months.

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